ETS one-for-two subsidy to be phased outClimate Change Issues Budget 2016
The Government is phasing out a subsidy in the Emissions Trading Scheme that allows some businesses to pay one emissions unit for every two tonnes of pollution they emit, Climate Change Minister Paula Bennett says.
The one-for-two subsidy was a temporary measure introduced during the global financial crisis to help moderate the initial costs of the ETS while businesses were struggling.
“The subsidy will be phased out over three years to give businesses time to plan and adjust, to support a more stable market,” Mrs Bennett says.
“This is a significant step in helping New Zealand meet its ambitious target of reducing emissions to 30 per cent below 2005 levels by 2030. More importantly, it will support our efforts to grow a lower-emissions economy.”
The current 50 per cent unit cost will increase to 67 per cent from 1 January, then 83 per cent from 1 January 2018, with all sectors in the ETS paying the full market price from 1 January 2019. The current price ceiling which caps units at $25 will remain.
“It is time businesses move towards paying the market price of their emissions. Gradually removing the one-for-two measure is a pragmatic and practical way for them to manage the costs,” Mrs Bennett says.
Removing the subsidy will positively impact the operating balance by $356 million over the next four years, based on a New Zealand Unit price of $12.
Changes to the subsidy primarily affect ETS participants in the waste, transport, energy, electricity and industry sectors, and importers of goods containing synthetic greenhouse gases.
Businesses exposed to international trade competition, and whose emissions are a big part of their costs, will continue to receive an allocation of emissions units to protect their competitiveness.